URLICH v URLICH [2014] NZHC 1151

URLICH v URLICH [2014] NZHC 1151 [28 May 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-3163[2014] NZHC 1151BETWEEN VINI URLICHApplicantAND IVAN URLICH as Administrator of theEstate of DARINKA URLICHRespondentHearing: 3 February 2014; 16 May 2014Appearances: A Gilchrist for ApplicantG Bogiatto for RespondentJudgment: 28 May 2014JUDGMENT (NO. 2) OF TOOGOOD JThis judgment was delivered by me on 28 May 2014 at 4:00 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarIntroduction[1] Vini Urlich has applied to have her brother Ivan replaced as sole executor andtrustee of the estate of their late mother, Darinka ("Mrs Urlich"). The application is supported by Vini and Ivan's sister, Fina.[2] This judgment follows the release of an earlier interim judgment1 in which I adjourned the proceeding part-heard to facilitate an attempt by the parties themselves to resolve or otherwise narrow the issues for determination by the Court and, in any event, to allow time for the filing of further evidence and submissions.[3] Mr Gilchrist and Mr Bogiatto indicated at a brief hearing on 16 May 2014 that they were content to rely on the further affidavits and written submissions filed since the release of the interim judgment. It is convenient to restate the background and issues.Background[4] Mrs Urlich died aged 86 on 14 May 2012. She was survived by Ivan and her two daughters, Vini and Fina. In her last will, dated 1 July 1996, Mrs Urlich directed that Ivan should have the first option to purchase her home in Herne Bay, Auckland("the Herne Bay property"), "such option to be exercised within 12 months from the date of [her] death." The will provided for the purchase price to be "the currentmarket value of the property fixed as at the date the option is exercised by a registered valuer appointed by the President of the Real Estate [sic] Institute ofValuers." The will directed that Ivan, the sole executor and trustee of Mrs Urlich's estate ("the Estate"), was to receive 50 percent of the residue (which would include the proceeds of the sale of the Herne Bay property to Ivan or on the market) and Vini and Fina were to receive 25 percent each.[5] On 29 March 2012, only six weeks prior to Mrs Urlich's death, the HerneBay property was transferred into a family trust ("the Trust") settled by Mrs Urlich. The beneficiaries of the Trust are identified as Mrs Urlich (during her lifetime), Ivan,1 Urlich v Urlich [2014] NZHC 348.and Ivan's unborn children. The Herne Bay property, which has remainedunoccupied since Mrs Urlich's death, has a current capital value of $1.24 million for rating purposes, but a valuer engaged by the applicant says the property has a market value of $2 million. The respondent's valuer estimates the market value to be$1.35 million.[6] Probate of the Estate has been granted. The residuary estate,2 which is said to comprise essentially personal effects such as house contents and jewellery, is estimated by the parties to be worth approximately $30,000 after payment of funeral and other expenses and debts.Application to remove Ivan Urlich as a trustee[7] Vini has applied to have an independent trustee such as the Public Trustappointed in Ivan's place. She bases the application principally upon inferenceswhich she submits the Court should draw against Ivan about the impropermanipulation of his late mother's affairs. They arise, she says, because of the part heplayed in the transfer of the Herne Bay property to the Trust. It is said by Vini that Mrs Urlich was suffering from dementia at the time of settlement of the Trust and the transfer of the property to it; that she spoke and understood little English; and that she was not properly advised.[8] The purpose and effect of the transfer of the Herne Bay property to the Trustwas, in Vini's submission, to defeat the entitlement which each of Vini and Fina would otherwise have had to 25 percent of the property's value when her motherdied a short time later and the assets in the Estate crystallised.[9] Vini argues that Ivan should be replaced so that an independent trustee appointed in his place can investigate the circumstances in which the asset was transferred and, if necessary, take proceedings on behalf of the Estate against Ivan with a view either to an award of damages or to having the asset returned to the Estate for division in accordance with Mrs Urlich's will.2 The underlying issue in the proceeding is whether the residuary estate should include the Herne Bay property. For the purposes of this judgment, "residuary estate" means the residue of theEstate excluding the Herne Bay property.Vini's submissions[10] For Vini, Mr Gilchrist made it clear at the outset of his oral submissions thathe was not inviting the Court to conduct a "mini-trial" of the allegation that Mrs Urlich had been improperly influenced to transfer her major asset out of herownership shortly before her death. The applicant's case at this point goes no furtherthan asking the Court to exercise its inherent discretionary jurisdiction to replace Ivan as trustee, in the interests of the beneficiaries as a whole, because of what is said to be the obvious conflict between Ivan's duties as trustee and his personal interests. It is submitted that an independent and impartial consideration of the allegations is required to assess whether the Estate has any claim against Ivan or any other person to bring the asset back into the Estate, and to ensure that the Estate has been administered properly to date.[11] Mr Gilchrist added that because of the circumstances of the transfer of theHerne Bay property into the Trust, and Ivan's initial refusal or reluctance to address the proper inquiries made of him by his sisters, there had been a complete breakdown of trust between Vini and Fina and their brother which also justifies removing Ivan from his role as trustee of the residuary estate, relatively small though it is. Mr Gilchrist referred to the sensitivities that can surface in the distribution of personal effects which may have sentimental value to the beneficiaries.[12] The Public Trust has confirmed its willingness to accept appointment as executor of the Estate. Mr Gilchrist submitted that the Public Trust is frequently appointed in cases where executors and trustees appointed by a will are replaced by court order. I observed in the interim judgment,3 however, that what the applicant is seeking is a decision by the replacement trustee to undertake a forensic investigation into the circumstances of the transfer of the Herne Bay property to the Trust and thehandling of the Estate's affairs. As presently constituted, the Estate has limited resources to fund such an exercise. Before appointing any trustee to replace Ivan, and giving any directions to the new trustee about matters to be investigated, the Court would need to be satisfied that such a course was expedient.3 At [9].Ivan Urlich's response[13] Without conceding that a prima facie case for removal of Ivan was made out on the papers, Mr Bogiatto confirmed that Ivan was prepared to treat the Herne Bay property as if it was an Estate asset. In essence, he said it was intended that Ivan would either purchase the property from the Trust, or it would be sold to a third party, with the proceeds then being divided between Vini, Fina and himself in the proportions set out in the will.[14] Counsel submitted that Ivan's proposal, if accepted by the Court as balancedand reasonable, ought to weigh heavily in favour of the Court exercising its discretion against making an order for removal. When I tested that proposition with Mr Bogiatto, he acknowledged that the proposal as first disclosed may not have adequately addressed all of the issues arising on the pleadings. Counsel accepted, for example, that the proposal assumed that the option to purchase provided in the will remained open to be exercised by Ivan when, on its face, the wording of the will may not support such an interpretation even if the property is returned to the Estate.[15] Mr Bogiatto also acknowledged that his client's proposal did not address the applicant's concerns about Ivan's ability or willingness to act even-handedly in the distribution of the personal effects and other assets forming part of the residuary estate.Terms of adjournment[16] I adjourned the application part-heard on terms which enabled the applicant to file further evidence about the appointment of a trustee to replace the respondent. The adjournment also permitted Mr Urlich to submit a proposal about how the Herne Bay property should be treated for the purposes of resolving the proceeding, including an explanation of how he proposes to distribute his mother's residuaryestate, if not as to the disposition of specific assets then as to a process for making the necessary decisions.Updating affidavits[17] After release of the interim judgment, Ivan and Vini filed affidavits addressing the issues raised at the first hearing and in the interim judgment. Vini'saffidavit also raises new issues which she says have recently arisen in connection with the affairs of her father and mother in relation to Croatian assets. It appears that Vini and Fina have common views on these matters.[18] It seems that Mrs Urlich left a Croatian will relating to property held by her in Croatia, some of which may have been or should have been inherited by her upon the death of her husband in 1992. Ivan is sole executor and trustee of his mother'sCroatian will which apparently leaves her Croatian estate to her children in the same proportions as under the New Zealand will; namely, half to Ivan with the other half being divided equally between Vini and Fina. It is suggested that Ivan has only recently provided information about the Croatian assets and his mother's Croatianwill, and has failed to provide his sisters with a copy of the will itself. These mattersare said to raise further suspicions about Ivan's willingness to provide full disclosureto his sisters of all relevant assets and documents concerning their parents' affairsand that, in those circumstances, he cannot be trusted to exercise his duties as trustee of the Estate properly in the interests of all beneficiaries.[19] Ivan's response regarding the Croatian assets and will is that there are small and virtually valueless plots of land in remote rural areas of Croatia, containing olive trees, which are currently registered in the name of their late father. Ivan says that his father had left 75 percent of the plots and olive trees to him and 25 percent to Mrs Urlich in his will, but that no one bothered to do anything about these bequests in Croatia because the plots of land have limited value and that implementing the legal process will incur significant cost and take years to complete. He says that, ifhis father's estate is administered in terms of his father's will, Vini's entitlement under her mother's Croatian will would be a 25 percent share of the 25 percent share in the plots of land to which their mother was entitled.[20] The affidavits also deal with disputes about what has happened concerning personal assets which were formerly in the Herne Bay property, including furnitureand items of jewellery. Allegations and counter-allegations of removal of some of this property are made between the siblings.Discussion[21] As counsel have correctly acknowledged, the Court has no jurisdiction overthe family's Croatian affairs and property. It is also accepted that it is not open to the Court in this proceeding to reach any conclusions about the circumstances in which the Herne Bay property was transferred to the Trust shortly prior to Mrs Urlich'sdeath. Nevertheless, I consider that the Court now has sufficient evidence to determine whether it is appropriate to order that, contrary to his mother's wishes,Ivan should be replaced as trustee and executor of the Estate.[22] Vini and Fina argue that the questions they have raised concerning the transfer of the Herne Bay property to the Trust and Ivan's management of his parents' Croatian assets justify the inference that there are matters concerning theEstate which should be investigated by an independent trustee.[23] Ivan rejects the criticisms but says that, in any event, because he proposes to deal with the Herne Bay property as if it was an asset of the Estate, there is no purpose in embarking on an exercise to determine whether the property should have been transferred to the Trust. Ivan says that he has no objection to an independent person overseeing the financial accounting of the Estate.Ivan's proposals to the Court[24] In his affidavit of 26 March 2014, sworn following the release of the interim judgment, Ivan set out a number of proposals for the division of property formerly belonging to his late mother which is currently held respectively by the Estate and the Trust. To the extent that the proposals require Ivan to take certain steps regarding the disposition of the Herne Bay property, it would be necessary to re-cast them as solemn undertakings to the Court having the effect, on acceptance by the Court, of formal orders. Any breach of such undertakings could be regarded as a contempt ofcourt and subject to a coercive response, including the recall of the judgment and the replacement of Ivan as trustee.[25] In reviewing Ivan's proposals in relation to the Estate, I have taken advantageof his invitation to the Court to make such variations to them as the Court considers appropriate in all of the circumstances. The variations I have made in articulating the proposals below are relatively minor and go only so far as to address matters of implementation of the overall plan which appear to have been neglected.[26] The proposals thus varied are as follows:(a) Ivan will give full effect to Mrs Urlich's last will dated 1 July 1996.(b) For accounting and administrative purposes, regardless of its ownership, the Herne Bay property shall be treated as if it was an asset of the Estate (which, with the Herne Bay property included, I refer to as "the enhanced Estate").(c) The report of a registered valuer on the present market value of the Herne Bay property shall be obtained as soon as is reasonably practicable from a valuer agreed to by Ivan and Vini or, in the event that they are unable to agree, by a registered valuer appointed by the Chief Executive Officer of the Property Institute.(d) Within 14 days of receipt of the valuer's report, copies of the report shall be provided to Vini and Fina, together with a draft statement of accounts for all of the assets and liabilities of the enhanced Estate. The statement of accounts shall identify the net amount to be divided between the three beneficiaries of the enhanced Estate in the proportions set out in the will.(e) Within 14 days of the receipt by them of the valuation report and draft accounts, each of Vini and Fina shall have the opportunity to submit to Ivan their proposals for the realisation of their 25 percent interest inthe net value of the enhanced Estate. If Vini or Fina so wish, any such proposal may include a proposal that either or both of them would purchase the Herne Bay property on the basis of the market value determined by the valuer.(f) If either Vini or Fina, or both of them, propose to purchase the Herne Bay property, the sale of the property shall take place on the terms contained in the standard sale and purchase agreement used by solicitors in Auckland, with settlement to occur within 30 days of receipt of the offer by Ivan, who shall accept it. The purchase price shall be the stated market value, less the share of the enhanced Estate which the purchaser or purchasers would have received following the sale of the property on the same terms to a third party and after deduction of legal fees and any adjustments for rates and insurances.(g) If only one of Vini or Fina purchases the Herne Bay property in accordance with paragraph (f), the other shall receive the share of the enhanced Estate which she would have received following the sale of the property on the same terms to a third party and after deduction of legal fees and any adjustments for rates and insurances.(h) In the event that neither Vini nor Fina purchases the Herne Bay property in accordance with paragraph (f), Ivan shall notify them within 14 days of receiving their proposal to receive cash payments whether he intends to place the Herne Bay property on the open market for sale or make a cash payment to each of Vini and Fina of their share of the enhanced Estate and retain sole ownership of the Herne Bay property as trustee of the Trust.(i) If Ivan notifies Vini and Fina that he intends to make a cash payment to each of them, rather than place the Herne Bay property on the open market for sale, he shall make such payments within a further period of 21 days.(j) If Ivan notifies Vini and Fina that he intends to place the Herne Bay property on the open market for sale then it shall be listed with a reputable firm of real estate agents in the Ponsonby/Herne Bay area, such as Barfoot & Thompson or Bayleys Real Estate, at the valuation determined by the valuer.4(k) Following settlement of the sale of the Herne Bay property on the open market, and after deduction of agent's commission and salecosts, legal fees, and any adjustments for rates and insurances, Ivan shall pay to each of his sisters their 25 percent interest in the net valueof the enhanced Estate, within seven days' of receipt of payment ofthe net proceeds of sale. At the time of payment, Ivan shall provide each of Vini and Fina with a copy of the final statement of accounts for the administration of the Estate.(l) As to the division of furniture, Ivan shall retain for himself two marine paintings, a mahogany wooden cabinet currently in the lounge, and the tools and boating equipment which he says are owned by him and are currently located under the house. The balance of the furniture shall be shared by Vini and Fina according to their wishes.(m) Regarding jewellery, Ivan says the only items left are four sets of gold earrings. Each of Vini and Fina shall have a set of earrings and Ivan shall retain the two remaining sets.(n) Ivan shall accept such further directions regarding administration of the Estate as the Court may consider appropriate, in all of the circumstances, to give effect to the will.4 Ivan's proposal did not identify the basis upon which a final decision as to the sale price on the open market would be made, but since he would be the majority beneficiary of such sale it can be assumed that he would not enter an agreement for sale at an unrealistic price. I do not consider it either necessary or appropriate for Ivan to be required to undertake to limit his discretion to a price at or above the stated market value.[27] With regard to the caveat lodged by Vini against the title to the Herne Bay property, Ivan proposes that it should be a condition of the arrangements that the caveat must be withdrawn before Vini receives any payment.[28] In addressing these proposals on behalf of Vini, Mr Gilchrist notes that it was only after the proceedings were issued that Ivan provided some relevant informationto his sisters about his mother's Estate and the Croatian property, and says that the proposal to treat the Herne Bay property as if it were an asset of the Estate was prompted only by the advent of the first hearing. Vini continues to insist that an independent executor and trustee is necessary to investigate all of the issues arising in connection with the administration of the Estate, including questions of whether expenses were properly incurred. She is willing to indemnify the Public Trust for payment of their costs.[29] Mr Gilchrist is critical of the fact that Ivan's proposals do not involve transferring the Herne Bay property back to the Estate and that Ivan intends it should merely be treated as if it were so transferred. He also points to Vini's concerns aboutwhether disposition of the four sets of earrings would properly account for all of hermother's jewellery. Overall, Mr Gilchrist's main point is that Ivan has demonstrated, through his alleged lack of transparency and by the adverse inferences to be drawn against him in connection with the transfer of the Herne Bay property, that he cannot be relied upon to administer the Estate properly.Views as to Ivan's conduct as executor and trustee[30] Vini's and Fina's concerns about Ivan's handling of his mother's Estate andother matters related to the assets formerly owned by their late parents are understandable. I am persuaded that, in the past, Ivan has not provided the other beneficiaries with adequate information concerning the Estate's assets and thehandling of them. He must accept responsibility for the consequences of the lack of transparency.[31] Further, I consider there are reasonable grounds for suspicion as to the circumstances in which Mrs Urlich transferred the Herne Bay property to a trust ofwhich, in reality, Ivan is the sole beneficiary. The evidence establishes that at the time of the transfer, Mrs Urlich was 85 years old and suffering from dementia. She did not speak English and acted apparently on the advice of a distant relative, a karate instructor, who speaks Croatian. It would have been prudent of Ivan to ensure that before deciding, shortly before her death, to deprive her daughters of the inheritance which she had considered appropriate in 1996, Mrs Urlich received independent, objective professional advice. It is no doubt in recognition of his failure to do so that Ivan has undertaken to treat the Herne Bay property as an asset of the Estate so that his sisters can benefit from it.[32] In the absence of Ivan's proposals, I would have accepted that Ivan's pastconduct justified the appointment of an independent executor and trustee in his place.5 But I am not persuaded that it is expedient to remove Ivan in the presentcircumstances. The Court's powers in this proceeding are limited to replacing Ivan as the sole executor and trustee. Doing so will not ensure resolution of the underlying issues, so far as they are within the Court's jurisdiction, and there will befurther delay in the administration of the Estate. Ivan's proposals have theconsiderable benefit of achieving certainty of outcome in relation to the Herne Bay property on a basis which respects the wishes expressed by Mrs Urlich in the will she executed 16 years prior to her death.[33] I recognise that accepting a modified form of Ivan's proposals does notaddress directly Vini's and Fina's concerns about the division of personal property items, and their concerns about the expenses attributed to the administration of the Estate to date. The Court is not in a position to resolve the claims and counter- claims about individual items of personal property and the assets are not substantial. I am not persuaded that removal of Ivan would provide a better overall solution in circumstances where the undertakings will result in an orderly treatment of the Herne Bay property or its proceeds at a value likely to be in the vicinity of not less than $1.35 million.[34] My decision not to grant the removal application is conditional upon confirmation by Ivan that he will adhere to the terms of his undertakings, as varied5 Hunter v Hunter [1938] NZLR 520 (CA), especially at 530-531 and 553-554.and recorded at [26]. To avoid the need for the parties to come back to the Court, Ishall make an "unless" order for Ivan's removal as executor and trustee, and his replacement by the Public Trust, such order to have effect only if Ivan does not confirm the undertakings within 28 days of the release of this judgment.[35] To preserve the Court's oversight of the disposition of the Herne Bayproperty or the payment to Vini and Fina of the cash equivalent of a proper share in the asset, I propose to direct that Ivan shall engage an independent accountant, nominated by Vini and paid out of the Estate, to examine the Estate accounts, monitor the financial aspects of the winding up of the Estate, and report to the beneficiaries. I will also reserve leave to any party to apply to the Court for further orders as to the implementation of the terms of the judgment.Orders[36] Accordingly, I make the following orders:(a) Subject to order (b), the respondent is removed as the executor and trustee of the Estate of the late Darinka Urlich and the Public Trust shall henceforth be the sole executor and trustee of the Estate, this order to come into effect on 26 June 2014. In that event, orders (c) and (d) shall be of no effect.(b) Order (a) shall not come into effect if the respondent formally undertakes, by a memorandum filed in the Court and served on theapplicant's solicitors no later than 25 June 2014, to implement the terms of the proposals set out at [26].(c) On behalf of the Estate, the respondent shall engage an independent accountant, nominated by the applicant and paid out of the Estate, to examine the Estate accounts, monitor the financial aspects of the winding up of the Estate, and report to the beneficiaries.(d) The caveat registered against the title to the Herne Bay property shall be withdrawn by the applicant forthwith upon:(i) the acceptance by the respondent of any offer to purchase made by the applicant or her sister Fina, or both, in accordance with [26](f); or(ii) the receipt by the applicant of a cash payment under [26](g) or [26](i).(e) Leave is reserved to any party to apply to the Court for further orders as to the implementation of the terms of the judgment.[37] Costs are reserved........................................Toogood J